Facts
Mactrac Ltd was a company carrying on the business of builders and civil engineers. Mactrac Ltd was the beneficial owner of 100% of the issued share capital in C&K (Construction) Ltd. On 3 March 1962 a receiver was appointed with respect to Mactrac Ltd by a debenture holder. Accounts would later show that at this time the company had a deficiency of assets against liabilities in the total sum of £389,977. On 21 May 1962 a petition of the compulsory winding-up of Mactrac Ltd was presented, and an order to that effect was made on 4 June 1962.
On 18 January 1963 the receiver (with the approval of the liquidator) sold all of the assets and undertaking of Mactrac Ltd to its wholly owned subsidiary, C&K (Construction) Ltd. On that date the unrelieved tax losses incurred Mactrac Ltd in its trade were £326,486 and it had a further £82,025 in unrelieved capital allowances. The receiver then sold the entire share capital of C&K (Construction) Ltd. to an outside purchaser. When the appellant company was assessed for tax, it claimed to be able to set-off the unrelieved losses and capital allowances of Mactrac under section 17 of the Finance Act 1954.
The central question in relation to the claim for tax relief was whether trade was "carried on" up until the date of the sale. Accordingly, for the purposes of the relevant analysis the only real question in the appeal was whether a company in liquidation (Mactrac Ltd) remained the beneficial owner of its assets.
Judgment
The sole judgment of the House of Lords was given by Lord Diplock. His short judgment started by encapsulating the issue:
My Lords, the only question that has been argued in your Lordships' House is whether when a company is ordered to be wound up under the Companies Act 1948 the effect of the winding-up order is to divest the company of the "beneficial ownership" of its assets within the meaning of that expression as it is used under section 17(6)(a) of the Finance Act 1954. [1]
His Lordship then reviewed the relief provisions in the Finance Act before turning to the effect of a winding-up order, holding that the principal effects of the statutory regime were that: [2]
- the custody and control of all the company's property are transferred to the liquidation (under section 243);
- the duty of the liquidator is to collect all of the assets and apply them in discharge of its liabilities (section 257(1)); and
- all powers of dealing with the company's assets are exercisable by the liquidator for the benefit of those persons only who are entitled to share in the proceeds of realisation of the assets under the statutory scheme. The company itself can never be entitled to any part of those proceeds, and after the completion of the winding-up it is dissolved (section 274).
The court noted that unlike the bankruptcy of a person, the winding-up of a company does not transfer legal title to the company's property to the liquidator. They referred to the comments of Lord Cairns in the decision of In re Albert Life Assurance Co., The Delhi Bank's case [3] where he had held that upon winding-up the assets of a company become impressed by a trust, and the decision of the Court of Appeal in In re Oriental Inland Steam Co, [4] and in particular the comment of Mellish LJ that "[i]t appears to me that that does, in strictness, constitute a trust for the benefit of all creditors". [5] Lord Diplock noted that the editors of Buckley on the Companies Acts had treated that statement as authoritative from 1897 to the present time, and that Lord Diplock was content that this was correct.
His Lordship then considered arguments by the appellants that Parliament may have intended something different when they used the term "beneficial ownership" in the Finance Act, which he also dismissed.
Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation. The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.
In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.
An officer of the Insolvency Service of the United Kingdom, an official receiver (OR) is an officer of the court to which they are attached. The OR is answerable to the courts for carrying out the courts' orders and for fulfilling their duties under law. They also act on directions, instructions and guidance from the service's Inspector General or, less often, from the Secretary of State for Business, Energy and Industrial Strategy.
In law, a liquidator is the officer appointed when a company goes into winding-up or liquidation who has responsibility for collecting in all of the assets under such circumstances of the company and settling all claims against the company before putting the company into dissolution. Liquidator is a person officially appointed to 'liquidate' a company or firm. Their duty is to ascertain and settle the liabilities of a company or a firm. If there are any surplus, then those are distributed to the contributories.
United Kingdom insolvency law regulates companies in the United Kingdom which are unable to repay their debts. While UK bankruptcy law concerns the rules for natural persons, the term insolvency is generally used for companies formed under the Companies Act 2006. "Insolvency" means being unable to pay debts. Since the Cork Report of 1982, the modern policy of UK insolvency law has been to attempt to rescue a company that is in difficulty, to minimise losses and fairly distribute the burdens between the community, employees, creditors and other stakeholders that result from enterprise failure. If a company cannot be saved it is "liquidated", so that the assets are sold off to repay creditors according to their priority. The main sources of law include the Insolvency Act 1986, the Insolvency Rules 1986, the Company Directors Disqualification Act 1986, the Employment Rights Act 1996 Part XII, the Insolvency Regulation (EC) 1346/2000 and case law. Numerous other Acts, statutory instruments and cases relating to labour, banking, property and conflicts of laws also shape the subject.
Re Barleycorn Enterprises Ltd [1970] Ch 465 is a UK insolvency law case, concerning the priority of creditors in a company winding up. It was held that fees for liquidation came in priority to preferential claims and floating charges. This was overturned by the House of Lords in Buchler v Talbot, but reinstated by Parliament through an amendment to the Insolvency Act 1986 s 176ZA.
British Eagle International Air Lines Ltd v Cie Nationale Air France [1975] 1 WLR 758 is a UK insolvency law case, concerning priority of creditors in a company winding up.
Re Gray’s Inn Construction Co Ltd [1980] 1 WLR 711 is a leading UK insolvency law case, concerning the cessation of transactions without court approval after a winding up petition.
Buchler v Talbot[2004] UKHL 9 is a UK insolvency law case, concerning the priority of claims in a liquidation. Under English law at the time the expenses of liquidation took priority over the preferred creditors, and the preferred creditors took priority over the claims of the holder of a floating charge. However, a crystallised floating charge theoretically took priority over the liquidation expenses. Accordingly the courts had to try and reconcile the apparent triangular conflict between priorities.
The British Virgin Islands company law is the law that governs businesses registered in the British Virgin Islands. It is primarily codified through the BVI Business Companies Act, 2004, and to a lesser extent by the Insolvency Act, 2003 and by the Securities and Investment Business Act, 2010. The British Virgin Islands has approximately 30 registered companies per head of population, which is likely the highest ratio of any country in the world. Annual company registration fees provide a significant part of Government revenue in the British Virgin Islands, which accounts for the comparative lack of other taxation. This might explain why company law forms a much more prominent part of the law of the British Virgin Islands when compared to countries of similar size.
British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.
Cayman Islands company law is primarily codified in the Companies Law and the Limited Liability Companies Law, 2016, and to a lesser extent in the Securities and Investment Business Law. The Cayman Islands is a leading offshore financial centre, and financial services form a significant part of the economy of the Cayman Islands. Accordingly company law forms a much more prominent part of the law of the Cayman Islands than might otherwise be expected.
Cayman Islands bankruptcy law is principally codified in five statutes and statutory instruments:
Anguillan bankruptcy law regulates the position of individuals and companies who are unable to meet their financial obligations.
Australian insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is principally governed by the Corporations Act 2001. Under Australian law, the term insolvency is usually used with reference to companies, and bankruptcy is used in relation to individuals. Insolvency law in Australia tries to seek an equitable balance between the competing interests of debtors, creditors and the wider community when debtors are unable to meet their financial obligations. The aim of the legislative provisions is to provide:
Provisional liquidation is a process which exists as part of the corporate insolvency laws of a number of common law jurisdictions whereby after the lodging of a petition for the winding-up of a company by the court, but before the court hears and determines the petition, the court may appoint a liquidator on a "provisional" basis. Unlike a conventional liquidator, a provisional liquidator does not assess claims against the company or try to distribute the company's assets to creditors, as the power to realise the assets comes after the court orders a liquidation.
Hong Kong insolvency law regulates the position of companies which are in financial distress and are unable to pay or provide for all of their debts or other obligations, and matters ancillary to and arising from financial distress. The law in this area is now primarily governed by the Companies Ordinance and the Companies Rules. Prior to 2012 Cap 32 was called the Companies Ordinance, but when the Companies Ordinance came into force in 2014, most of the provisions of Cap 32 were repealed except for the provisions relating to insolvency, which were retained and the statute was renamed to reflect its new principal focus.
Stichting Shell Pensioenfonds v Krys[2014] UKPC 41 was a decision of the Privy Council on appeal from the British Virgin Islands relating to an anti-suit injunction in connection with an insolvent liquidation being conducted by the British Virgin Islands courts.
Re MC Bacon Ltd [1991] Ch 127 is a UK insolvency law case relating specifically to the recovery the legal costs of the liquidator in relation to an application to set aside a floating charge as an unfair preference.
Akers v Samba Financial Group[2017] UKSC 6, [2017] AC 424 is a judicial decision of the Supreme Court of the United Kingdom relating to the conflict of laws, trust law and insolvency law.
